Activision-Blizzard’s Pattern of Success Will Continue

The first 24 hours of Call of Duty: Black Ops II raked in half a billion in its first 24 hours. The record it broke was set by Call of Duty: Modern Warfare 3 one year ago. Activision-Blizzard, Inc. (Nasdaq: ATVI) really hits it out of the park with the Call of Duty series. Even lumping it together as one franchise does not do it justice anymore. There is the World War 2-era games, Modern Warfare, and Black Ops that form mini-franchises and have different developers. Modern Warfare 3 was the previous record holder and that was a different branch of Call of Duty, and now Black Ops II comes along. I am impressed, because to have two successful arcs like that is amazing.

I only wish some of the other properties in Activision-Blizzard were as successful. I am not talking about those Blizzard juggernauts, but the recent Prototype 2 did not do as well as I would have hoped. I liked it less than the first game, and I think the series ends with the second. More Call of Duty games are in the works, but I would like to see some other properties take-off.

The Blizzard side is slow, but strong. Diablo 3 was quite successful and broke many records of its own. However, it has the issue of being a PC-only title and those will never compete with cross-platform games in terms of sheer sales. I have never been a big fan of first-person shooters so Black Ops escaped my notice, but I have gone and bought the first and second ones now. I assumed they were normal video game successes of great quality. I was aware of the reviews, but not of the massive sales.

Black Ops II have not entered into an earnings report yet, since the release date was November 13, 2012. It will be nice to see all that revenue, though last quarter had Diablo 3 so the comparison might not be as extreme as it could be. Video games tend to make most of their money around release, just like movies. There is a chance that Q4 will be a blowout if the holiday season unlocks buying from some holdouts. I mean people buying Black Ops II and Diablo 3. It is not uncommon to put off purchases to the holiday season, though that is a decision by the parents of gamers who cannot save enough money to buy it on their own. With two quarters of record-breaking games in a row, 2012 is shaping up to be a fantastic year for Activision-Blizzard.

It is hard to criticize Blizzard with the success they have had and will have. However, the long lead time with these StarCraft expansions worries me. There are some graphics updates in the new Heart of the Swarm, but the minimum requirements are the same. I will compromise and say Heart of the Swarm will look amazing, but if the third expansion Legacy of the Void takes another year or two I imagine it would look dated. Between the game and the second expansion enough time has passed that many companies would have created a completely new engine. Perhaps I am worried for nothing, but I would hate to see a review that says amazing gameplay but graphics look dated.

PC gaming is in dire straits, and Legacy of the Void will have a hard time if people have consoles, iPads, and netbooks instead of high-powered PCs. You cannot rely on hardcore gamers, since they focus on consoles too. There are not many stalwart PC gamers left. Gamers are sometimes fickle creatures, though every now and then you will see admirable loyalty among fans. To that end looking at competitors’ offerings is critical to evaluating the continued success of Activision-Blizzard.

Electronic Arts Inc. (Nasdaq: EA) has its own strong properties. EA always strikes me as a sprawling company compared to Activision-Blizzard. It has so many arms and properties. The sports games like Madden are bound to be winners bringing in steady profits. There is also The Sims, Battlefield, and Need for Speed. I do not think most people will hear about the World Series of Yahtzee. I am sure the game will turn a profit, but I doubt it will be a blockbuster. Games like Medal of Honor were great in their heyday. Medal of Honor was my World War 2 shooter of choice, but that became supplanted by Call of Duty. EA is not the only competitor out there though.

I am disappointed that THQ Inc.’s (Nasdaq: THQI) Darksiders 2 did not sell too well. After an October release about 1.5M copies have been sold. Considering its cross-platform nature and the quality of the game I would have hoped at least 3M sales. Saints Row 3 is doing okay too, but THQ really needs to turn itself around. I really am surprised at the weakness, because some of their properties and licenses are amazing. Darksiders, Dawn of War, and Saints Row are all quality franchises. I say from personal experience that both Darksiders games are incredibly addicting and fun with a top-notch setting and mythology.

If THQ can get its house in order it has some strong properties to leverage, but I will admit that the games appeal to a smaller section of gamers. In that case, it needs to do something about expenses, because its almost -20% profit margin is abhorrent. This section is tends to be loyal however. Dawn of War has many ardent followers, but its PC-only status probably means it is not THQ’s savior. All-in-all THQ has some quality products, and I am not willing to resign it to history yet. It would be easy to release shoddy games, but I have seen games released that barely functioned like Sword of the Stars 2. I want to take a closer look at THQ in the future.

For the sane and safe, Activision-Blizzard is a fantastic choice. I just see Electronic Arts as a bit all over the place. I like companies that I can quickly glance at and see if they are strong or weak. The Activision side of Activision-Blizzard makes that a bit difficult, but nowhere near as tough as Electronic Arts. Also, all experience with the company has led me to believe that Activision-Blizzard only wants to indulge in the most top-notch properties, and even average games are cut. Prototype 2 did okay, but not great. Subsequently, the company is shrinking the studio that made it.